October 12, 2022
Stroock Client Alert
By: Raymond "Rusty" Pomeroy II, Trevor T. Adler, Elsa A. Ben Shimon, Brian Diamond, Joseph B. Giminaro, Jeffrey R. Keitelman, Ross F. Moskowitz, Karen Scanna, Joshua Sohn
The New York City Department of Buildings (“DOB” or the “Department”) recently released draft rules intended to bring clarity to several issues related to building owners’ compliance with the greenhouse gas (“GHG”) emissions reduction requirements contained in Local Law 97 (also known as the Climate Mobilization Act). Perhaps most importantly, the proposed rules dramatically expand LL97’s available occupancy use groups to include all Energy Star use groups; set the GHG coefficient for utility electricity for LL97’s second compliance period (i.e., 2030-2034); establish new restrictions on the use of Renewable Energy Certificates (“REC”) as a means of compliance; and confirm that an owner’s good faith efforts to comply with LL97 and other mitigating factors will be considered by the Department when determining penalties for non-compliance. The proposed rules also address a number of other important issues related to LL97 compliance, including: establishing building emissions limits for future compliance periods; setting GHG coefficients for energy sources that were not specified in LL97; clarifying the processes for a number of required calculations (e.g., building gross square footage, building annual emissions); providing a methodology for establishing GHG coefficients for “time of use” utility electricity, campus style electric systems, and distributed energy resources; creating an exemption for energy consumed by electric vehicle charging stations; and creating an emissions-free allowance for building owners who purchase off-site solar energy.
A copy of the proposed rules can be found here. DOB will accept comments on the proposed rules through November 14, 2022. A public hearing on the proposed rules will be held by DOB on that same date.
LL97 establishes strict GHG emissions limits for covered buildings. These emissions limits take effect starting in 2024, and building owners are thereafter required to submit annual reports to DOB certifying to the building’s actual GHG emissions. Building owners whose buildings exceed the GHG emissions limits for a given year are subject to extensive penalties. Stroock has issued a number of Client Alerts related to LL97, and you can find those Client Alerts here.
On balance, we see the net effect of the proposed rules as a positive development for most building owners. The expansion of occupancy use groups to include all Energy Star use groups will allow building owners to calculate their building GHG emissions limits more in line with the building’s actual uses and energy needs, and will lead to a fairer, more representative, GHG emissions limit. LL97, as enacted, included only 10 occupancy use groups. This led to a number of disparate building uses, with varying energy demands, being lumped into the same use group and subject to the same emissions factors. In contrast, the Energy Star system employs 61 use occupancy groups, allowing for a much more granular approach to establishing building GHG emissions limits.
Similarly, we see the establishment of the GHG coefficient for utility electricity for the 2030-2034 compliance period as a positive development for most building owners. LL97 requires that DOB establish a GHG coefficient for utility electricity for the 2030-2034 compliance period by January 1, 2023. Because utility electricity is generally the single largest source of energy used by buildings, the GHG coefficient attributed to that source is perhaps the single biggest factor in determining whether or not a building will be in compliance with the LL97 emissions limits.
Establishing the GHG coefficient for utility electricity for 2030-2034 was complicated. The coefficient is established by DOB, working with New York State Energy Research and Development Authority (“NYSERDA”) and the New York Independent Service Operator (“NY ISO”), and is a reflection of the GHG intensity of electricity provided via the utility grid. At present, only about 25% of the electricity delivered into the New York City grid comes from renewable sources. The bulk of the electricity provided to New York City comes from fossil fuel power plants. That results in a high GHG coefficient for the initial compliance period (2024-2029). There are, however, a number of new transmission line projects poised to deliver substantial renewable energy into the New York City grid in the next 5-10 years. Similarly, there are a number of utility scale off-shore wind projects, in various states of project planning and approval, that would dramatically increase the amount of renewable energy delivered to New York City. None of these off-shore wind projects have received final project approval, and none have begun construction.
In essence, then, DOB had to make an assumption with respect to how many of those projects would be completed by 2030, and what the resulting carbon intensity of the New York City grid would look like. DOB appears to have assessed this issue fairly optimistically, and the proposed rule provides for a nearly 50% reduction in the GHG coefficient for utility electricity for 2030-2034.
The majority of covered buildings (around 80%) are not impacted by the initial GHG emissions limits in LL97, meaning most building owners will not have to make any changes to building operations, or install energy efficiency measures in order to comply with the law’s initial GHG emissions limits and avoid penalties. It is when those emissions limits become more stringent, in 2030, that a majority of covered buildings (around 75%) are expected to be impacted by LL97. The significant reduction proposed for the GHG coefficient for grid electricity should help many building owners remain in compliance with the emissions limits in 2030 with no, or minor, investments in energy efficiency retrofits. The reduction also helps further the City and State’s push to electrify buildings, by making the use of fossil fuels in buildings even less attractive.
As noted previously, the penalties for failing to comply with LL97’s emission limits are significant. The preamble to the proposed rules notes that LL97 allows for penalty reduction where owners have made a good faith effort to comply with the law, or are facing other mitigating circumstances, and confirms that DOB will consider these mitigating factors when determining penalties. While this was largely expected to be the case, the issue of penalty mitigation was a contentious one at a City Council oversight hearing held earlier this year. At that hearing, several councilmembers expressed strong opposition to any type of penalty forgiveness or mitigation, with at least one councilmember suggesting that building owners who failed to comply with the GHG emissions limits should “pay through the nose.” While LL97’s express provisions contain the penalty mitigation language, it is a good sign for the regulated community that DOB is reaffirming its intent in this regard.
Not all of the proposed rules are positive, though. Another issue of contention at the aforementioned City Council oversight hearing was the availability of RECs as an alternate means of compliance. LL97’s text broadly allows building owners to purchase RECs, in an unlimited number, as an alternate means of compliance with the GHG emissions limits. The use of RECs is limited only by the requirement that RECs must relate to renewable energy that is directly delivered into the New York City electrical grid. Several councilmembers expressed the desire to further limit the use of RECs, so as to force building owners to spend money on energy efficiency retrofits, thereby actually reducing building emissions.
DOB’s proposed rules do propose some further limitations, but the new limitations should not significantly impact building owners. The proposed rules provide that RECs may only be used to offset emissions attributed to energy from the electricity grid. Thus, emissions related to the use of natural gas, or district steam, for example, may not be offset with RECs. Because utility electricity tends to comprise such a large share of overall building energy use, this limitation should not have a significant impact on building owners desiring to use RECs as an alternate means of compliance.
Our team of CMA attorneys at Stroock has developed a multi-disciplinary approach to assist clients with all aspects of the CMA -- assessment, compliance, adjustments, PACE financing, leasing, and diligence issues. Please contact any of our CMA attorneys for assistance.
October 12, 2022
Stroock Client Alert
By: Raymond "Rusty" Pomeroy II, Trevor T. Adler, Elsa A. Ben Shimon, Brian Diamond, Joseph B. Giminaro, Jeffrey R. Keitelman, Ross F. Moskowitz, Karen Scanna, Joshua Sohn
The New York City Department of Buildings (“DOB” or the “Department”) recently released draft rules intended to bring clarity to several issues related to building owners’ compliance with the greenhouse gas (“GHG”) emissions reduction requirements contained in Local Law 97 (also known as the Climate Mobilization Act). Perhaps most importantly, the proposed rules dramatically expand LL97’s available occupancy use groups to include all Energy Star use groups; set the GHG coefficient for utility electricity for LL97’s second compliance period (i.e., 2030-2034); establish new restrictions on the use of Renewable Energy Certificates (“REC”) as a means of compliance; and confirm that an owner’s good faith efforts to comply with LL97 and other mitigating factors will be considered by the Department when determining penalties for non-compliance. The proposed rules also address a number of other important issues related to LL97 compliance, including: establishing building emissions limits for future compliance periods; setting GHG coefficients for energy sources that were not specified in LL97; clarifying the processes for a number of required calculations (e.g., building gross square footage, building annual emissions); providing a methodology for establishing GHG coefficients for “time of use” utility electricity, campus style electric systems, and distributed energy resources; creating an exemption for energy consumed by electric vehicle charging stations; and creating an emissions-free allowance for building owners who purchase off-site solar energy.
A copy of the proposed rules can be found here. DOB will accept comments on the proposed rules through November 14, 2022. A public hearing on the proposed rules will be held by DOB on that same date.
LL97 establishes strict GHG emissions limits for covered buildings. These emissions limits take effect starting in 2024, and building owners are thereafter required to submit annual reports to DOB certifying to the building’s actual GHG emissions. Building owners whose buildings exceed the GHG emissions limits for a given year are subject to extensive penalties. Stroock has issued a number of Client Alerts related to LL97, and you can find those Client Alerts here.
On balance, we see the net effect of the proposed rules as a positive development for most building owners. The expansion of occupancy use groups to include all Energy Star use groups will allow building owners to calculate their building GHG emissions limits more in line with the building’s actual uses and energy needs, and will lead to a fairer, more representative, GHG emissions limit. LL97, as enacted, included only 10 occupancy use groups. This led to a number of disparate building uses, with varying energy demands, being lumped into the same use group and subject to the same emissions factors. In contrast, the Energy Star system employs 61 use occupancy groups, allowing for a much more granular approach to establishing building GHG emissions limits.
Similarly, we see the establishment of the GHG coefficient for utility electricity for the 2030-2034 compliance period as a positive development for most building owners. LL97 requires that DOB establish a GHG coefficient for utility electricity for the 2030-2034 compliance period by January 1, 2023. Because utility electricity is generally the single largest source of energy used by buildings, the GHG coefficient attributed to that source is perhaps the single biggest factor in determining whether or not a building will be in compliance with the LL97 emissions limits.
Establishing the GHG coefficient for utility electricity for 2030-2034 was complicated. The coefficient is established by DOB, working with New York State Energy Research and Development Authority (“NYSERDA”) and the New York Independent Service Operator (“NY ISO”), and is a reflection of the GHG intensity of electricity provided via the utility grid. At present, only about 25% of the electricity delivered into the New York City grid comes from renewable sources. The bulk of the electricity provided to New York City comes from fossil fuel power plants. That results in a high GHG coefficient for the initial compliance period (2024-2029). There are, however, a number of new transmission line projects poised to deliver substantial renewable energy into the New York City grid in the next 5-10 years. Similarly, there are a number of utility scale off-shore wind projects, in various states of project planning and approval, that would dramatically increase the amount of renewable energy delivered to New York City. None of these off-shore wind projects have received final project approval, and none have begun construction.
In essence, then, DOB had to make an assumption with respect to how many of those projects would be completed by 2030, and what the resulting carbon intensity of the New York City grid would look like. DOB appears to have assessed this issue fairly optimistically, and the proposed rule provides for a nearly 50% reduction in the GHG coefficient for utility electricity for 2030-2034.
The majority of covered buildings (around 80%) are not impacted by the initial GHG emissions limits in LL97, meaning most building owners will not have to make any changes to building operations, or install energy efficiency measures in order to comply with the law’s initial GHG emissions limits and avoid penalties. It is when those emissions limits become more stringent, in 2030, that a majority of covered buildings (around 75%) are expected to be impacted by LL97. The significant reduction proposed for the GHG coefficient for grid electricity should help many building owners remain in compliance with the emissions limits in 2030 with no, or minor, investments in energy efficiency retrofits. The reduction also helps further the City and State’s push to electrify buildings, by making the use of fossil fuels in buildings even less attractive.
As noted previously, the penalties for failing to comply with LL97’s emission limits are significant. The preamble to the proposed rules notes that LL97 allows for penalty reduction where owners have made a good faith effort to comply with the law, or are facing other mitigating circumstances, and confirms that DOB will consider these mitigating factors when determining penalties. While this was largely expected to be the case, the issue of penalty mitigation was a contentious one at a City Council oversight hearing held earlier this year. At that hearing, several councilmembers expressed strong opposition to any type of penalty forgiveness or mitigation, with at least one councilmember suggesting that building owners who failed to comply with the GHG emissions limits should “pay through the nose.” While LL97’s express provisions contain the penalty mitigation language, it is a good sign for the regulated community that DOB is reaffirming its intent in this regard.
Not all of the proposed rules are positive, though. Another issue of contention at the aforementioned City Council oversight hearing was the availability of RECs as an alternate means of compliance. LL97’s text broadly allows building owners to purchase RECs, in an unlimited number, as an alternate means of compliance with the GHG emissions limits. The use of RECs is limited only by the requirement that RECs must relate to renewable energy that is directly delivered into the New York City electrical grid. Several councilmembers expressed the desire to further limit the use of RECs, so as to force building owners to spend money on energy efficiency retrofits, thereby actually reducing building emissions.
DOB’s proposed rules do propose some further limitations, but the new limitations should not significantly impact building owners. The proposed rules provide that RECs may only be used to offset emissions attributed to energy from the electricity grid. Thus, emissions related to the use of natural gas, or district steam, for example, may not be offset with RECs. Because utility electricity tends to comprise such a large share of overall building energy use, this limitation should not have a significant impact on building owners desiring to use RECs as an alternate means of compliance.
Our team of CMA attorneys at Stroock has developed a multi-disciplinary approach to assist clients with all aspects of the CMA -- assessment, compliance, adjustments, PACE financing, leasing, and diligence issues. Please contact any of our CMA attorneys for assistance.
